Debt yield calculator
NOI divided by the loan. It is the only one of the three lender tests with no opinion in it: no appraisal, no interest rate, no amortization schedule to stretch. This solves it in any direction, shows what each conventional floor would advance, and ties the answer back to the cap rate and the leverage, which is where the surprise usually is.
Why the advance rate is capped by the cap rate
Debt yield is the cap rate divided by the loan to value. That is an identity, not an approximation: NOI over loan is NOI over value divided by loan over value. Read it backwards and it is the fact that catches people out. At a fixed floor, a low cap rate property cannot be levered far, however comfortable the coverage looks.
| Going-in cap rate, divided by loan to value | 6.00% over 63.00% | 9.52% |
|---|---|---|
| NOI divided by the loan | $600,000 over $6,300,000 | 9.52% |
What each floor would allow
The same $600,000 of income against the floors a credit officer commonly tests. These are conventional levels rather than a quote: where a floor lands moves with credit conditions, asset class, and lender, and the one that governs your deal is on your term sheet.
| Debt yield floor | Largest loan it allows | Against your $6,300,000 | Loan to value there |
|---|---|---|---|
| 8.00% | $7,500,000 | $1,200,000 of room | 75.0% |
| 9.00% | $6,666,667 | $366,667 of room | 66.7% |
| 10.00%Fails | $6,000,000 | -$300,000 short | 60.0% |
| 11.00%Fails | $5,454,545 | -$845,455 short | 54.5% |
Debt yield uses the lender's NOI, not the marketed one, and the whole loan, not the funded portion. It is one of three tests: a lender also caps the loan against value and against coverage, and funds the smallest of the three answers. Which one binds is the useful fact, and it is not visible from this test alone.
A debt yield is one division on one NOI. Building that NOI out of the rent roll and the T-12, and running all three lender tests against it year by year, is the underwriting. Altyst reads the documents and does that part.
One division, and what it is asking
Debt yield is annual net operating income divided by the loan amount. $600,000 of NOI against a $6,300,000 loan is 9.52%. Because it is one identity, knowing any two of the three figures gives you the third: the largest loan a floor allows is the NOI divided by the floor, and the income a loan requires is the loan times the floor.
What the ratio asks is a lender's question, not a buyer's. Suppose the borrower fails and the lender ends up owning the building having spent exactly what it lent. What return would it be earning? That is the debt yield, and its reciprocal is the plainer version of the same statement: at 9.52%, the loan is about ten and a half years of income. No forecast, no rate, no appraisal, and nothing about the borrower enters that sentence.
Why lenders added a third test
The other two tests both contain someone's judgment. Loan to value rests on an appraisal, which is an estimate of what a buyer would pay, produced in a market that was recently paying more. Debt service coverage rests on the interest rate and the amortization period, and both of those belong to the lender: stretch the amortization from twenty-five years to thirty and the payment falls, so the coverage ratio rises, and the loan passes a test it failed a minute earlier without a dollar of the property's income having changed.
Debt yield cannot be flexed that way. It moves only when the income moves or the loan moves. That immunity is the whole reason it came into general use after 2008, and it is why it tends to become the binding test exactly when credit is cheapest: low rates lift the coverage test and inflated appraisals lift the value test, while the debt yield sits still.
The identity: debt yield is the cap rate over the leverage
Divide NOI by the loan and you can write it as NOI over value, divided by loan over value. That is the cap rate divided by the loan to value, exactly:
- A 6.0% cap at 65% leverage is a 9.23% debt yield. Same property at 75% leverage and it is 8.0%. The property never changed; the loan did.
- Read backwards, the floor caps the advance rate. At a 9% floor, the most that can be advanced against a 6.0% cap property is 6.0 divided by 9.0, which is about 67%, whatever the coverage looks like and whatever the appraisal says. At a 4.5% cap, the same floor stops at 50%.
- This is why low-yield assets are hard to finance in a tight market. Not sentiment, arithmetic. The higher the price relative to income, the less debt a fixed yield floor will support, and no amount of amortization or interest-only structuring moves it.
The calculator computes both sides of that identity independently, from the figures you typed, and prints them next to each other. They tie because they are the same statement, and seeing them tie is worth more than reading the claim.
A worked example against the other two tests
Take the deal every tool on this site opens with: a $10,000,000 property, $600,000 of NOI, a 6.5% coupon on thirty-year amortization. A lender running all three tests gets a 65% loan-to-value answer of $6,500,000, a 1.25x coverage answer of about $6,328,000, and a 9% debt yield answer of $6,666,667. It funds the smallest, so coverage binds and the loan is about $6.33m. The debt yield test had about $338,000 of room and never came into it.
Now move the coupon to 5.0% and leave everything else alone. The payment falls, so the coverage test allows more, and the debt yield answer does not move at all, because no interest rate appears in it. At a low enough coupon the debt yield becomes the binding test, and at that point neither a longer amortization nor a cheaper rate buys another dollar of proceeds. Only more income or a lower price does. Which test is binding on your deal, and what actually moves it, is what the loan sizing calculator reports.
What this page does not do
It does not tell you the floor your lender will quote. Floors move with credit conditions, differ by asset class and by lender, and a static page asserting one would be stale the week it shipped. The levels in the ladder are conventional test levels for stabilized commercial property, published as conventions rather than as market data, and the one that governs your deal is on your term sheet. How to read a floor honestly is in what is a good debt yield.
It also does not size a loan on its own. Debt yield is one of three tests run in parallel, and a lender funds the smallest answer, so a debt yield taken alone can be comfortably wrong about the proceeds. And it is not advice: it is arithmetic on the numbers you typed, with the conventions it used stated on the page.
Questions
What is debt yield?
Net operating income divided by the loan amount, expressed as a percentage. A 10% debt yield means the property produces ten cents of income a year for every dollar advanced, which is the same as saying the loan is ten times the annual income. A lender reads it as the return it would earn if it took the property back tomorrow having paid what it just lent, which is why it is a test of the loan rather than of the borrower.
How do you calculate debt yield?
Divide the lender's underwritten annual NOI by the total loan amount. $600,000 of NOI on a $6,300,000 loan is a 9.52% debt yield. Rearranged, the largest loan a floor allows is the NOI divided by the floor, so the same income supports $6,666,667 at a 9% floor and $6,000,000 at a 10% floor. Use the NOI a lender would underwrite rather than the marketed one, and use the whole loan, including any earn-out or holdback the lender is committing to.
Why do lenders use debt yield instead of DSCR and LTV?
They use it as well, not instead, and it is the only one of the three with no opinion in it. Loan to value depends on an appraisal, which is an estimate. Coverage depends on the interest rate and the amortization, both of which the lender itself sets, so a lender can manufacture a passing coverage ratio by stretching the amortization or shaving the coupon. Debt yield divides income by dollars lent and nothing else. It came into general use after 2008 for exactly that reason: it is the test that cheap debt cannot talk its way around.
What is a good debt yield?
It depends on the asset class, the lender, and the credit environment, and any single figure quoted as the answer is a convention rather than an offer. Floors around 9% and 10% are commonly discussed on stabilized commercial property, with the bar higher for hospitality, single-tenant and transitional assets where income is lumpier or less proven, and lower where the income is long dated and investment grade. The number that governs your deal is on your term sheet. What the floor means, and how to read it against the other two tests, is on the page about what a good debt yield is.
Is debt yield the same as cap rate?
No, and the difference is the denominator. A cap rate divides NOI by the value of the property; a debt yield divides the same NOI by the loan. They are related exactly rather than loosely: debt yield equals the cap rate divided by the loan to value. So a 6% cap property at 65% leverage carries a 9.23% debt yield, and the same property at 75% leverage carries an 8% debt yield. This calculator computes both sides of that identity so you can see them agree.
Why does a low cap rate limit how much I can borrow?
Because of that identity. At a fixed debt yield floor, the largest advance rate available is the cap rate divided by the floor. A property bought at a 6% cap cannot be levered past about 67% at a 9% floor, and a property bought at a 4.5% cap cannot pass 50%, no matter how good the coverage looks or how high the appraisal comes in. This is the mechanism behind the observation that low-yield assets are hard to finance in a tight credit market, and it is arithmetic rather than sentiment.
Which NOI belongs in the numerator?
The lender's. It typically applies its own vacancy factor, imputes a management fee whether or not one is paid, and deducts replacement reserves above the line, all of which pull the underwritten NOI below the marketed one. A debt yield computed on a broker's pro forma NOI and one computed on the lender's normalized NOI can differ by more than a full point on the same building and the same loan, which is enough to move the proceeds by hundreds of thousands of dollars.
Do you store what I type?
Not the figures. The math runs in your browser, nothing you type is sent to us, and there is no account or email field. Your scenario is written into the page address so you can bookmark it or send it to a partner, which does mean a link you share carries your figures with it. The page does carry the site's normal cookies, which the cookie notice lists; the embeddable version carries none.
One test of three, on one year of income
Altyst reads the offering memorandum, the rent roll, and the T-12, builds the NOI this page asks you to type, runs all three lender tests, and reports the debt yield for every year of the hold rather than only at close.